IBEconomicsSLRevision Notes2. Microeconomics2.1 Demand2.1.2 Non-Price Determinants of Demand

Non-Price Determinants of Demand (SL IB Economics)

Revision Note

Steve Vorster

Expertise

Economics & Business Subject Lead

Shifts of the Demand Curve

  • There are numerous factors that will change the demand for a good/service, irrespective of the price level. Collectively these factors are called the non-price determinants of demand and include
    • Changes in real income
    • Changes in tastes/preferences
    • Changes in the price of related goods (substitutes and complements)
    • Changes in the number of consumers
    • Future price expectations
       
  • Changes to each of the non-price determinants, shifts the entire demand curve (as opposed to a movement along the demand curve)

1-2-2-shifts-in-the-demand-curve_edexcel-al-economics

A graph that shows how changes to any of the non-price determinants shifts the entire demand curve left or right, irrespective of the price level

 

  • For example, if a firm increases their Instagram advertising, there will be an increase in demand as more consumers become aware of the product
    • This is a shift in demand from D to D1. The price remains unchanged at £7 but the demand has increased from 15 to 25 units

An Explanation of how each of the Non-Price Determinants of Demand Shifts the Entire Demand Curve at Every Price Level


Non-Price Determinant


Explanation
Condition
Shift
Condition
Shift

Changes in real income

  • Real Income determines how many goods/services can be enjoyed by consumers
  • There is a direct relationship between income and demand for goods/services 

Income
Increases

D Increases
Shifts Right
(D→D1)

Income
Decreases

D Decreases
Shifts Left
(D→D2)

Changes in taste/preferences

  • If goods/services become more preferable then demand for them increases
  • There is a direct relationship between changes in taste/preferences and demand
  • Advertising or branding can change tastes/preferences

Good becomes more preferable

D Increases
Shifts Right
(D→D1)

Good becomes less preferable

D Decreases
Shifts Left
(D→D2)

Changes in the prices of substitute goods

(Related goods)

  • Changes in the price of substitute goods will influence the demand for a product/service
  • There is a direct relationship between the price of good A and demand for good B
  • E.g. The price of a Sony 60" TV (good A) increases so the demand for LG 60" TV (good B) increases

Price of Good A Increases

D for
Good B
Increases
Shifts Right
(D→D1)

Price of Good A Decreases

D for
Good B Decreases
Shifts Left
(D→D2)

Changes in the prices of complementary goods

(Related goods)

  • Changes in the price of complementary goods will influence the demand for a product/service
  • There is an inverse relationship between the price of good A and demand for good B
  • For example, the price of printer ink (good A) increases so the demand for ink printers (good B) decreases

Price of Good A Increases

D for
Good B Decreases
Shifts Left
(D→D2)

Price of Good A Decreases

D for
Good B
Increases
Shifts Right
(D→D1)

Changes in the number of consumers

  • If the population size of a country changes over time, then the demand for goods/services will also change
  • There is a direct relationship between the changes in population size and demand
  • Demand will also change if there is a change to the age distribution in a country as different ages demand different goods/services e.g an ageing population will buy more hearing aids

Population Increases

D Increases
Shifts Right
(D→D1)

Population Decreases

 D Decreases
Shifts Left
(D→D2)

Future price expectations

  • If consumers expects the price of a good/service to increase in the future, they will purchase it now and demand will increase
  • If consumers expects the price of a good/service to decrease in the future, they will wait to purchase it later and demand will decrease


Expectations price will rise


D Increases
Shifts Right
(D→D1)


Expectations price will fall


 D Decreases
Shifts Left
(D→D2)

Examiner Tip

The difference between a movement along the demand curve and a shift in demand is essential to understand. You will be repeatedly examined on this and it is important that you use the correct language to show that you understand the difference between a change in quantity demanded and a change in demand.

When price changes (ceteris paribus), there is a movement along the demand curve resulting in a change to quantity demanded. When a non-price determinant of demand changes, there is a shift of the entire demand curve resulting in a change to demand.

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Steve Vorster

Author: Steve Vorster

Expertise: Economics & Business Subject Lead

Steve has taught A Level, GCSE, IGCSE Business and Economics - as well as IBDP Economics and Business Management. He is an IBDP Examiner and IGCSE textbook author. His students regularly achieve 90-100% in their final exams. Steve has been the Assistant Head of Sixth Form for a school in Devon, and Head of Economics at the world's largest International school in Singapore. He loves to create resources which speed up student learning and are easily accessible by all.